The War on Drugs is no longer a priority, but for the legal cannabis market in New Jersey, the black market poses a threat. But just because you’re a legacy operator doesn’t mean you cannot go legit.
The prohibition of marijuana was so strict that it forced those who wanted to sell weed into illegal markets. This resulted in no tax revenue in this unregulated industry lacking oversight.
Now that legalization is in full effect, many are wondering how they should proceed with their business when there are now two avenues available for them: remain a legacy operator or become part of the legal landscape.
Fortunately, advocates are working hard to bring legacy cannabis business operators in New Jersey to the light. But for some, it’s still going to take some convincing to leap through the regulatory hurdles and take on additional expenses to make their operations legal.
New Jersey’s Legal Recreational Cannabis Market Could Disrupt Legacy Operators
New Jersey’s legal adult-use cannabis market is new and exciting. With the state’s medical cannabis program in place for two years already, legal recreational use of marijuana is set to go live in the state. This will open up the state’s economy to much-need tax revenue, particularly essential following COVID-19’s impact on the state.
The pandemic has ravaged New Jersey. The state’s population is suffering from the spreading illness and its economy is battered by unemployment rates that exceed national averages. But legalization is a beacon of hope that has the potential to refresh the local economy.
Legalization will give the Garden State a way to recoup some revenue from weed sales, whether it be through taxes or other means (such as licensing). It will also give each New Jersey legacy operator the chance to become a legal cannabis entrepreneur.
The state will have an opportunity to undo some of the damage done by prohibition, like new job creation and entrepreneurial opportunities in the cannabis space. It also will offer opportunities to those who’ve been impacted most by the War on Drugs.
Dasheeda Dawson, the chief strategy officer at the Cannabis Health Equity Movement (CHEM) and co-founder of the Cannabis Education Advocacy Symposium & Expo (CEASE), claims New York has around $4.6 million in cannabis sales happening annually, with most of it driven by the illicit market.
“Now is the time to innovate regulation and thoughtfully incorporate legacy operations into emerging marketing in New Jersey and New York,” Dawson explained to NJ.com. “We must learn from their successes and shortfalls, absorb the knowledge and expertise of longtime operators, and offer them a space in the industry, rather than criminalization and exclusion.”
According to Trenton-based consultant, Leo Bridgewater, New Jersey will offer provisions to support minorities. These will include formerly incarcerated people to ensure they have the opportunity to run canna-businesses in the Garden State.
“Cash out, cash in,” Bridgewater explained. “Cash out of the legacy market and cash into the adult-use market. Everyone that I know, I tell them ‘get out of the game, your customers are about to go somewhere.”
If New Jersey provides an amnesty period for legacy operators, this should effectively lead many of these people away from the black market cannabis operations.
“If the state gives an amnesty period where you can come to light in some kind of way, that’s literally turning the legacy market inside out if you think about it,” he said.
New Jersey’s Black Market for Cannabis
New Jersey’s black market for cannabis is nothing new, and some believe legal cannabis taxes will encourage the black market’s operations. This is something we’ve seen in California, and it’s likely to continue as long as illicit dealers are willing to take on the risk.
Legitimate cannabis distributors selling through legitimate channels have reason to worry. The black market for cannabis is still thriving in California, and there’s a good chance it will continue to expand despite the state’s legal weed shops.
“You’re going to get people who don’t know their left from their right and won’t know what to ask. That’s who the state’s going to capitalize on,” DC, a black market cannabis seller, explained to the Asbury Park Press. “But, after a while, it’ll be, ‘Why am I paying taxes on this? Why am I paying double the price?'”
Even though pricing is a pain point for legitimate cannabis distribution operations, that’s the least of someone like DC’s worries. He still has to deal with more risk than those who are legit because his product is unregulated and untested. While it’s more costly to become legitimate, the fact of the matter still stands: there’s more to gain by switching to operate legally.
However, many N.J retailers seem to agree with DC’s sentiment. The reality is that the legal market will inevitably be more expensive than what’s found on the black market, and not everyone can afford to pay a higher price. This competition will result in some consumers choosing the cheaper, more dangerous option. But some advocates are working to displace the illicit cannabis market in New Jersey.
Displacing New Jersey’s Illicit Cannabis Market
Minimizing the illicit market is a difficult-to-achieve goal of all legal cannabis authorities. However, the tax structure currently proposed for New Jersey’s legal cannabis sector is likely to encourage dealers to continue operating outside of the law.
The main factor driving the illicit market’s success in legal states is the tax structures and compliance-related regulations. These taxes and elevated costs of doing business are artificially inflating the price of cannabis and associated products throughout the supply chain.
For example, in Cali, adult-use cannabis became legal on January 1, 2018. But even with the largest addressable market, sales weren’t anywhere near what was predicted. Actually, the sales fell for the year, damaging companies and leaving the state government with a dwindling budget.
But why? Because the taxes throughout the supply chain forced cannabis flower prices to soar nearly 80% higher on the legal market than the average black market dealer was offering.
Advice for Illicit Cannabis Distributors in New Jersey
Each legacy operator in New Jersey should be aware of the risks that come with continuing to operate illegally. As more businesses become legitimate, they’re not going to want to sell to black market operators as they understand they can lose their licenses, have to pay costly infractions, and even face prison time. Thus, dealers will need to determine how they may change their business model accordingly.
With this in mind, some advocates are working to ensure equal opportunities for the legacy market to participate in New Jersey’s legal cannabis sector. To handle the legacy operator issue, Dasheeda Dawson is hosting a five-hour virtual conference, which is presented by Weedmaps.
“Legacy to Legal: Transitioning into a Regulated Cannabis Market” will discuss New York and New Jersey, and how legacy market operators can make the transition to operate within the law. This conference will happen on Friday April 30, from 5 pm to 10 pm, with several notable speakers set to deliver insight.
New York State Assembly Majority Leader Crystal Peoples-Stokes will deliver the keynote. With her experience forming recently legalized cannabis legalization within New York and advocating social equity measures, she’ll present information that will help illicit cannabusiness operators switch to legitimacy.
“We found long and hard for equity-centered legalization that provides investment and restoration to communities battered by the War on Drugs. Now, we must work to ensure that those most harmed by prohibition reap the benefits of the blossoming industry,” Peoples-Stokes explained. “I’m proud to support the Legacy to Legal education series because it brings Black and brown entrepreneurs who’ve been working in the shadows to the table so that they can be part of New York’s adult-use market. In order for legal cannabis to be equitable, we must integrate them into our framework. These events are a powerful start to that process.”
Legacy operators in New Jersey will have a chance to contribute to the legal market as a form of equity. With this in mind, it’s important to keep in mind that legalization will permit legitimate cannabis operations, and advocates are working to ensure each legacy operator will have a chance at success.
New Jersey’s Legacy Operator Assistance
At Northstar, we understand that the industry is evolving. The plant was prohibited, and now that it’s becoming legal throughout the nation, we want to bolster that progress with our services.
Interested in structuring and scaling your cannabis business? Contact us today for expert guidance.